Mumbai: The Maharashtra State Co-operative (MSC) Bank Ltd has rejected a state government proposal to take over loss-making Wardha District Central Co-operative Bank (DCCB) in Vidarbha, pouring cold water over the government’s larger attempt to revive 11 loss-making DCCBs in the state.

Acquiring Wardha DCCB, which has a “staggering 98% NPAs”, or non performing assets, would affect profitability, said Pramod Karnad, managing director of MSC Bank, India’s biggest bank in the co-operative sector and the apex bank for Maharashtra’s 31 DCCBs.

Maharashtra is India’s leading state in terms of the network of the co-operatives and the penetration of co-operative banks. MSC Bank is an apex body for 31 DCCBs which have 3,746 branches, with a third tier of 21,085 Primary Agriculture Credit Societies (PACS) which directly lend to farmers and the rural population.

Its refusal to merge Wardha DCCB puts the revival plan of 10 other loss-making DCCBs in jeopardy as well. Among these 11, Wardha, Nagpur, and Buldhana DCCBs together have a debt burden of Rs550 crore and 1,100 employees.

“A specific proposal was made to the MSC Bank by the state government about taking over the Wardha DCCB. We have told the government that we cannot do this because Wardha DCCB is running huge operational losses and almost all of its assets have turned NPAs. Merging Wardha DCCB with MSC Bank would have affected our profitability and operations,” Karnad said. MSC Bank also felt that if it agreed to the merger, the state government would have come up with similar proposals. “Though Wardha DCCB is in the most critical condition, there are other loss-making DCCBs as well and we could be flooded with similar proposals if we take over Wardha DCCB. There is also an issue of transfer of Wardha DCCB’s employees to MSC Bank and we cannot agree to it,” Karnad said.

A senior official at the Maharashtra government’s department of co-operation which had drafted this proposal said the state also wanted MSC Bank to merge Nagpur and Buldhana DCCBs, also in Vidarbha, though a specific reference was only made about Wardha DCCB. “These three are the worst-performing DCCBs which are on the brink of liquidation if not revived immediately. They have reached a stage where there is almost zero recovery of loans and their day-to-day banking operations are stalled,” the official said requesting anonymity.

The Wardha, Nagpur, and Buldhana DCCBs are among 23 unlicensed DCCBs in four states that the Narendra Modi government at the Centre chose to revive under a special capital infusion plan in November 2014. Under the plan, total capital infusion of Rs2,375.42 crore was approved to be made in these banks in which the Centre would have a share of Rs673.29 crore, the four state governments Rs1,464.59 crore, and the National Bank for Agriculture and Rural Development (Nabard) would contribute Rs237.54 crore. The revival plan set specific targets for these DCCBs to be achieved by 31 March 2017. These included bringing NPAs to at least half of the November 2014 level, achieving 15% growth rate in deposits, drawing up a monthly monitoring plan, and putting in place a corporate governance system.

The revival plan also asked Nabard and the Reserve Bank of India to closely monitor the operations of these banks during the implementation of the revival plan. A senior Nabard official in Mumbai’s regional office, who requested anonymity, said the three DCCBs in Maharashtra had failed to achieve any of the “major targets like reducing NPAs by half and growth rate of deposits”.

“We have issued them reminders but there is little feedback by way of performance. The Nagpur DCCB has recovered only 0.5% of its loans and Buldhana 0.11%,” the Nabard official said.

Karnad of MSC Bank said the case of Wardha DCCB summed up the state of most loss-making DCCBs in state. “Nearly 50% of its loans are crop loans and the rest are non-agriculture loans. There is almost zero recovery of crop loans and non-agriculture loans have turned into NPAs which can only be recovered if the assets under mortgage are sold off. But those assets are mortgaged to other lenders as well apart from Wardha DCCB and cannot be easily sold,” Karnad said. He added that if farmers started repayment of loans on a large scale, the banks would have a daily cash flow and normal banking operations could begin. “But then, the farmer who repays loan immediately expects the bank to lend him again and these DCCBs are not in a state to deliver,” Karnad said.